MONEY Social Security

This Letter Can Be Worth $1 Million

envelope with $100 bills
Steven Puetzer—Getty Images

Paper Social Security statements are back. Here’s how to use that information to plan smarter.

This fall the Social Security Administration began mailing out benefit statements for the first time since 2011. It’s crucial information, especially if you’re poised to move to your beach condo in Boca soon. “For many upper-middle-class couples, those benefits can be worth as much as $1 million over the course of your retirement,” says Chris Jones, chief investment officer of 401(k) adviser Financial Engines.

To save money, Social Security had been directing people to its website for benefits information. After a backlash, the agency resumed mailings to most workers reaching landmark birthdays—ages 40, 45, and so on. Of course, you don’t need to wait for a paper statement to find out how your benefit stacks up. For an estimate, simply sign up online.

YOURThat’s well worth doing if you’re within a few years of retirement. Your future Social Security income is key to determining if your financial strategy is on track. Then take these steps.

Proofread it. Make sure your earnings history is accurate. “If Social Security doesn’t have an earnings record for a particular year, there will be a zero, which may reduce your benefit,” says Boston University economics professor Laurence Kotlikoff, who heads MaximizeMySocialSecurity.com, an online benefits calculator.

Set your target. Your statement will have the income you can expect at three different retirement ages, assuming you keep working at your current salary. But you have far more options for when to start collecting benefits. If you are single, have never married, and don’t plan to work in retirement, your choice will be straightforward most of the time. Your main decision is whether to delay filing, which will boost your benefit by 6% to 8% a year up until the maximum at age 70. Financial Engines and AARP have free online tools that let you compare your annual and lifetime benefits based on the age you claim.

Plot the best strategy. If you’ve ever been married, your choices are more complex. “Your claiming strategy can be the biggest retirement decision you’ll make,” says Jones. Coordinating benefits with your spouse the right way can add as much as $250,000 to your lifetime Social Security income, according to Financial Engines. That’s why you may want to pay for a calculator that allows you to add more variables, such as working in retirement or a wide age gap in your marriage. MaximizeMySocialSecurity.com ($40) and SocialSecuritySolutions.com (starts at $20) both do that.

Get a reality check. Once you have a rough idea of your future benefit, plug that number into a retirement-income calculator, such as the tool at T. Rowe Price. You’ll see if your payouts, plus your portfolio withdrawals, are enough to ensure a comfortable retirement. If not, use the tool to see how saving more or working longer can help, or consult an adviser. Given the dollars at stake, devising a smart Social Security strategy can be well worth a fee.

MONEY Financial Planning

7 Pre-New Year’s Financial Moves That Will Make You Richer in 2015

champagne bottle with $100 bill wrapped around it
iStock

Before you pop the champagne this December 31, get your financial house in order.

Didn’t 2014 just start? At least that’s the way it feels to me. Well, regardless of how things seem, the reality is the year is just about over. But that doesn’t mean you can’t make a big impact on your financial future before the big ball drops in Times Square.

You can still achieve some very important financial goals before Dec. 31.

1. Make a Plan to Get Out of Debt

You may not be able to get out of debt between now and the end of the holiday season but you can set yourself up now so you’ll be debt-free very soon. Of course the first step is to watch your spending over the holidays. Don’t overdo it. That only makes it harder to solve your debt situation.

Next, create a system to eliminate debt by first consolidating and refinancing to the lowest possible interest rate. Once you do that, put all the muscle (and money) you can towards paying off the highest cost debt you have and make the minimum payments towards other credit card balances. As you pay off your most expensive debt continue to keep your debt payments as high as possible towards the next highest-cost debt. Repeat this process until you are debt-free. Believe me it won’t take that long. But you won’t ever be done if you don’t start. Why not begin the process of lowering your cost of credit card debt today? (You can use this free calculator to see how long it will take to pay off your credit card debt. You can also check your credit scores for free to see how your debt is affecting your credit standing.)

2. Track Your Spending

Even if you aren’t in debt, it’s important to know what you spend on average each month. Once you know where the money is going, you can decide if you are spending it as wisely as possible or if you need to make some changes.

Many people think they know how much they spend on average but most of us underestimate our monthly nut by 20-30%. You can use a program, a spreadsheet or simply look at your bank statements and track your total withdrawals for the month. It doesn’t matter how you do it. But if you aren’t tracking your spending, I recommend you start doing so now.

What’s great about starting to track spending before the new year is that you get used to your system and if you use a program or spreadsheet, it will also simplify your tax reporting for next year. This is especially helpful if you do your own taxes.

3. Review Your Estate Plan

Things usually slow down at work during the holidays. That gives you time to get to important items you may have been putting off. Estate planning is one of those items that people often procrastinate on.

I’m not asking you to get your will or trust done by Dec. 31 (although you could). But at the very least do two things:

  1. Educate yourself about the difference between wills and trusts.
  2. Find a good estate planning attorney or legal service and start the process.

My parents completely ignored this topic. When they both died young and unexpectedly, it made it monumentally more painful, difficult and scary for my siblings and I. Don’t take chances. You can and should start taking care of your estate planning now.

4. Review Your Life Insurance

As long as we’re talking about estate planning, we might as well dust off your old life insurance policies and give them the old once over. Some people have outdated and overly expensive life insurance they no longer need. Others walk around woefully under-insured, exposing their loved ones to great risk that is completely avoidable.

Pull out your old policies today. Do you still need those policies? If not, cancel them. If you do need insurance, start comparison shopping to make sure you have the right coverage at the right price.

5. Start Investing

If you’ve been on the fence about investing it’s time to stop thinking and start doing. If you don’t know how to get started, there are plenty of great resources on the Web. You need to understand the basis, of course, but you don’t need a Ph.D. in economics before you leave the starting gate. Once you read up on the basics of investing, be prepared to start slow and learn as you go. You will be fine.

And remember: You don’t need a pile of dough in order to start investing. If you are a DIY investor, there are plenty of good online brokers who will open an account for as little as $500. Can you think of a good reason to wait until next year to start investing? I can’t either. Let’s go.

6. Maximize Your Retirement Contributions

Before year-end, make sure you have maximized allowable contributions to your retirement plan at work. Unless you are in debt, you want to take advantage of employer matching if at all possible. Even if there is no matching program at work, try to maximize your plan contributions. This will give you the benefit of tax deferral and a forced savings plan.

Call your HR department today to find out if you can bump up your retirement plan contributions for the year.

7. Get in Front of Your Finances

You have an amazing opportunity right now. Make sure you are on top of your financial game now, next year and beyond. Take out a calendar right now and schedule when you are going to begin and follow through on the items on this list.

Look at your calendar for the next seven days. When are you going to:

  1. Inquire about refinancing your debt?
  2. Set up your spending tracking system?
  3. Start asking for estate planner referrals?
  4. Review your life insurance?
  5. Set up your investment account?
  6. Call HR and make sure to bump up your retirement contributions to max out for the year?

Taken all together, the list above might seem overwhelming. But if you do one task each day, you can really change your financial life this week. Each task above will take you between 15 minutes to three hours to complete. Are you going to do one item each day this week? How will you feel once you’ve begun? Or are you going to wait until “after the holidays”?

More from Credit.com

This article originally appeared on Credit.com.

MONEY Social Security

Can I Collect Social Security From My Ex?

Ask the Expert Retirement illustration
Robert A. Di Ieso, Jr.

Q: I have been divorced twice and currently am not married. Can I draw Social Security off either of my ex-husbands? I was married to the first one for 16 years and the second for 11. And would I be able to remarry and still draw off the ex? I am 62 now. – Rita Diestel, Bruce, Miss.

A: You can collect Social Security benefits based on the earnings of a former spouse if you were married 10 years or more, and you are at least 62 and not currently married. So, you’re good on all three counts.

But there are a few more wrinkles, says Adam Nugent, managing partner of Foresight Wealth Management, an investment advisory firm in Sandy, Utah.

You can collect benefits from the ex-husband with the larger payout but only if you’re not eligible for a higher amount based on your own work record. You can check how much you’re entitled to and your ex-husbands’ payouts (if you have their Social Security numbers) at ssa.gov.

To collect on an ex, you must be divorced at least two years. The former husband that you base your benefits on must be at least 62, though he doesn’t have to have started receiving his benefits yet for you to get yours.

But just because you may be able to collect now doesn’t mean it’s the best move for you, says Nugent. You are entitled to 50% of your former husband’s benefits but, like anyone collecting Social Security, you’ll get less if you start taking it before your full retirement age of 66. The longer you delay the better. If you decide to take it before 66, your benefits will be permanently reduced, 8% for each year you take it before 66. “You will be rewarded for waiting,” says Nugent.

As for marrying again, if your ex is remarried, that won’t affect your benefits. But if you remarry that’s a different story. Nearly 60% of U.S. divorcees remarry and if you do, you are no longer able to get a divorced spouse’s benefits, unless you get divorced again yourself.

If you remain single, you can use many of the same strategies that married spouses use to boost your payouts, says Nugent. One option is to file a restricted application with Social Security (at full retirement age) to collect a divorced spousal benefit, which is half of what your ex gets. Then, once you reach 70, you can stop receiving the ex-spousal benefit and switch to your own benefit, which will be 32% higher than it would have been at your full retirement age.

The rules are a bit different if your former spouse dies. You are entitled to 100% of your deceased ex-spouse’s Social Security, the same as any widow even if he was remarried. And if you are married when your ex passes away, you can collect survivor benefits as long as you didn’t remarry until age 60 or later. If you are collecting Social Security based on your own work history, you can switch to survivor’s benefits if the payment is larger. Or, if you’re collecting survivor’s benefits, you can switch to your own retirement benefits — between 62 and 70 — if it offers a larger payment.

There’s a lot to think about, says Nugent, but most important is that there are big benefits for delaying. As a woman you’re more vulnerable in retirement than a man because women typically live longer. Of course, your health, expected longevity, and other retirement savings should be factored in as well. “But if you can wait at least a few more years to start collecting Social Security, that will give you more security in the long run,” says Nugent.

Do you have a personal finance question for our experts? Write to AskTheExpert@moneymail.com.

Read next: Why Social Security Suddenly Changed Its Benefits Withdrawal Rule

MONEY strategies

Woulda, Coulda, Shoulda: What You Can Learn From the Top 3 Pre-Retirement Mistakes

Researchers recently asked people nearing retirement what specific things they wish they'd done differently to better prepare for their post-career lives. Here's your chance to go to school on their answers.

There’s no shame in making retirement-planning mistakes. But it would be a shame not to learn from other people’s mistakes if you have the opportunity to do so. And now you do.

In May, researchers for TIAA-Cref’s Ready-to-Retire Survey asked people age 55 to 64 what steps they wish they had taken during their working years to increase their chances of achieving a secure retirement. You’ll find their answers below, along with the percentage of people who wished they’d made each of these moves. Think of it as your chance to turn their hindsight into your foresight, and boost your retirement prospects by learning, and profiting from, their mistakes.

1. They wished they’d started saving sooner (52%). Retirement can seem like a far-off horizon in the early and even the middle stages of your career. Which makes it easy to put off committing to a serious savings regimen to some vague date in the future. But procrastination can seriously stunt the eventual size of your nest egg.

For example, a 25-year-old who earns $40,000 a year, gets 2% annual pay raises and contributes 10% of salary to a 401(k) plan throughout his career would end up with an account value of almost $830,000 at age 65, assuming a 6% annual return.

If that same person waits just five years until age 30 to start saving for retirement, his nest egg would total just under $645,000 at 65, or roughly $185,000 less than with the earlier start. And if this 25-year-old doesn’t begin saving until age 35, come retirement time his 401(k)’s value would be about $492,000, or about 40% less than had he started in his mid-20s. Better to understand now the bite procrastination can take from retirement security and start saving sooner rather than later.

2. They wished they’d saved more of their paycheck (47%). Given the financial obligations we must take care of in the present—paying the mortgage, funding health insurance, raising a family—it’s not surprising that saving for the future often gets short shrift. That said, if most people take a hard-enough look at their budget, they can usually find smart ways to free up extra bucks to save for retirement.

And it doesn’t take a huge bump in annual savings to significantly boost the eventual size of your nest egg. For example, by just upping the percentage of salary saved from 10% to 12%, the 25-year-old above would end up with a nest egg of just under $1 million at 65 compared with almost $830,000 by saving at a 10% rate. And if through a combination of his own retirement-plan contributions plus any employer-provided match, he can increase his annual savings to 15% of salary—the level recommended by the Boston College Center For Retirement Research—he would have $1.2 million at retirement. The key is to free up those extra bucks for saving as early in your career as you can to maximize the benefit of long-term compounding of investment returns.

3. They wish they’d invested more aggressively (34%). This one is tricky. Yes, investing more of your retirement savings in stocks can lead to higher long-term returns and boost the eventual size of your retirement stash. For example, if our hypothetical 25-year-old saves 15% annually but earns a 7% vs. 6% annual investment return, his age-65 nest egg would jump to nearly $1.6 million.

But a more stock-intensive portfolio is also more vulnerable to setbacks, such as the 57% tumble stock prices took between October 2007 and March 2009. The key is arriving at a portfolio of stocks and bonds that can deliver solid long-term returns that’s also compatible with tolerance for risk, which you can gauge with a Risk Tolerance Questionnaire.

Fortunately, pulling off that balancing act between risk and return is eminently doable. And while the near-retirees surveyed didn’t say anything about investing expenses, I will: Namely, whatever mix of stocks and bonds you eventually settle on, you’ll increase your chances of earning a higher return if you stick to investments with low fees.

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MONEY year-end moves

3 Smart Year-End Moves for Retirement Savers of All Ages

golden eggs of ascending size
Getty Images

To give your long-term financial security a boost, take one of these steps before December 31.

It’s year-end, and retirement savers of all ages need to check their to-do lists. Here are some suggestions for current retirees, near-retirees, and younger savers just getting started.

Already Retired: Take Your Distribution

Unfortunately, the “deferred” part of tax-deferred retirement accounts doesn’t last forever. Required minimum distributions (RMDs) must be taken from individual retirement accounts (IRAs) starting in the year you turn 70 1/2 and from 401(k)s at the same age, unless you’re still working for the employer that sponsors the plan.

Fidelity Investments reports that nearly 68% of the company’s IRA account holders who needed to take RMDs for tax year 2014 hadn’t done it as of late October.

It’s important to get this right: Failure to take the correct distribution results in an onerous 50% tax—plus interest—on any required withdrawals you fail to take.

RMDs must be calculated for each account you own by dividing the prior Dec. 31 balance with a life expectancy factor (found in IRS Publication 590). Your account provider may calculate RMDs for you, but the final responsibility is yours. FINRA, the financial services self-regulatory agency, offers a calculator, and the IRS has worksheets to help calculate RMDs.

Take care of RMDs ahead of the year-end rush, advises Joshua Kadish, partner in planning firm RPG Life Transition Specialists in Riverwoods, Ill. “We try to do it by Dec. 1 for all of our clients—if you push it beyond that, the financial institutions are all overwhelmed with year-end paperwork and they’re getting backed up.”

Near-Retired: Consider a Roth

Vanguard reports that 20% of its investors who take an RMD reinvest the funds in a taxable account—in other words, they didn’t need the money. If you fall into this category, consider converting some of your tax-deferred assets to a Roth IRA. No RMDs are required on Roth accounts, which can be beneficial in managing your tax liability in retirement.

You’ll owe income tax on converted funds in the year of conversion. That runs against conventional planning wisdom, which calls for deferring taxes as long as possible. But it’s a strategy that can make sense in certain situations, says Maria Bruno, senior investment analyst in Vanguard’s Investment Counseling & Research group.

“Many retirees find that their income may be lower in the early years of retirement—either because they haven’t filed yet for Social Security, or perhaps one spouse has retired and the other is still working. Doing a conversion that goes to the top of your current tax bracket is something worth considering.”

Bruno suggests a series of partial conversions over time that don’t bump you into a higher marginal bracket. Also, if you’re not retired, check to see if your workplace 401(k) plan offers a Roth option, and consider moving part of your annual contribution there.

Young Savers: Start Early, Bump It Up Annually

“Time is on my side,” sang the Rolling Stones, and it’s true for young savers. Getting an early start is the single best thing you can do for yourself, even if you can’t contribute much right now.

Let the magic of compound returns help you over the years. A study done by Vanguard a couple years ago found that an investor who starts at age 25 with a moderate investment allocation and contributes 6% of salary will finish with 34% more in her account than the same investor who starts at 35—and 64% more than an investor who starts at 45.

Try to increase the amount every year. A recent Charles Schwab survey found that 43% of plan participants haven’t increased their 401(k) contributions in the past two years. Kadish suggests a year-end tally of what you spent during the year and how much you saved. “It’s not what people like to do—but you have a full year under your belt, so it’s a good opportunity to look at where your money went. Could you get more efficient in some area, and save more?”

If you’re a mega-saver already, note that the limit on employee contributions for 401(k) accounts rises to $18,000 next year from $17,500; the catch-up contribution for people age 50 and over rises to $6,000 from $5,500. The IRA limit is unchanged at $5,500, and catch-up contributions stay at $1,000.

MONEY Ask the Expert

Do You Really Need Medigap Insurance If You’re in Good Health?

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Robert A. Di Ieso, Jr.

Q: We are in good health and have a Medigap Plan N for 2014. With same expected health in 2015, do we need anything more than Medicare A, B, and D plans? —Norbert & Sue

A: Medigap, a private insurance policy that supplements Medicare, picks up where Medicare leaves off, helping you cover co-payments, coinsurance, and deductibles. Some policies also pay for services Medicare doesn’t touch, like medical care outside the U.S.

This additional insurance is not necessary, but, says Fred Riccardi, client services director at the Medicare Rights Center, “if you can afford to, have a Medigap policy. It provides protection for high out-of-pocket costs, especially if you become ill or need to receive more care as you age.” (If you already have some supplemental retiree health insurance through a former employer or union, you may be able to skip Medigap; you also don’t need a Medigap policy if you chose a Medicare Advantage Plan, or Medicare Part C.)

If you purchase Medigap, you’ll owe a monthly premium on top of what you pay for Medicare Part B. The cost ranges from a median annual premium of $936 for Medigap Plan K coverage to $1,952 for Plan F coverage, according to a survey of insurers by Weiss Ratings. The median cost for your plan N was $1,332 a year.

Even if you didn’t end up needing your Medicap policy this year, however, think twice before you drop it.

If you skip signing up when you’re first eligible, or if you buy a Medigap plan and later drop it, you might not be able to get another policy down the road, or you may have to pay far more for the coverage.

Under federal law, you’re guaranteed the right to buy a Medigap policy during a six-month open enrollment period that begins the month you turn 65 and join Medicare, says Riccardi. (To avoid a gap in coverage, you can apply earlier.) During this time, insurance companies cannot deny you coverage, and they must offer you the best available rates regardless of your health. You can compare the types of Medigap plans at Medicare.gov.

You also have a guaranteed right to buy most Medigap policies within 63 days of losing certain types of health coverage, including private group health insurance and a Medigap policy or Medicare Advantage plan that ends its coverage. You also have this fresh window if you joined a Medicare Advantage plan when you first became eligible for Medicare and dropped out within the first 12 months.

Most states follow the federal rules, but some, such as New York and Connecticut, allow you to buy a policy any time, says Riccardi. Call your State Health Insurance Assistance Program to learn more.

Outside of one of these federally or state-protected windows, you’ll be able to buy a policy only if you find a company willing to sell you one.And they can charge you a higher premium based on your health status, and you may have to wait six months before the policy will cover pre-existing conditions.

MONEY retirement planning

Money Makeover: Married 20-Somethings With $135,000 in Debt—And Roommates

The Liebhards
Julian Dufort

A young couple gets some advice on how to save for the future even while saddled with loads of student debt.

Samantha and Travis Liebhard, both 24, met as college freshmen, married right after graduating in 2012, and quickly moved to Minneapolis so that Travis could start his graduate pharmacy program at the University of Minnesota—Twin Cities.

They face intimidating debts: Travis has racked up $135,000 in student loans and expects to incur another $60,000 before graduation. Barely making ends meet this year, the couple came up with an idea: Why not cut their $1,500 monthly rent in half by giving up their big two-bedroom apartment and finding room­mates to share a similarly priced four-bedroom unit?

So in September, two of Travis’s classmates moved in with the Liebhards. Now Samantha’s $40,000 salary in her public relations job and Travis’s $8,000 pay from a part-time hospital job seem like enough to get by on. Samantha complains about dishes in the sink and clothes left on the floor, but the four roommates get along well. “It’s helping me prepare to have children one day,” she jokes.

Retirement seems far away, given the Liebhards’ more urgent financial concerns, starting with the student debt. The couple also want to have kids and buy a house, but Travis won’t be making a full pharmacist’s salary of about $120,000 for another four years; after his expected graduation in 2016 comes a two-year residency, paying about $40,000 annually.

The Liebhards don’t know whether to save for re­tirement now or just focus on their debt. So far the couple have only $2,000 in the bank and $3,200 in retirement accounts. Samantha wants to get serious about saving for retirement, but Travis isn’t sure: “It’s hard for me to even think about retirement until we can real­ly do something about it.”

Helping the Liebhards navigate their options is Sophia Bera of Gen Y Planning in Minneapolis. The key to success, she says, is to have a reasonable spending plan and take incremental steps.

The Advice

Save in moderation: Given how much Travis owes, plus the 6.8% interest rate on most of his loans, repaying debt should indeed be the couple’s top priority, says Bera. So for now Samantha should only bump up her 4% 401(k) contribution to 6%—enough to get her full match. Her 401(k) portfolio—half in a 2020 target-date fund and half in a large-cap U.S. stock fund—is too conservative for her age and not properly diversified, says Bera. Her plan’s 2050 target-date fund, which is 80% in stocks, would be a better choice.

Bank some cash: Because the Liebhards have little saved for emergencies, Bera says they should put Travis’s $800 monthly pay­check­—the amount they are saving in rent—into a savings account; the goal is for that to reach $10,000, or three months of their net pay. Next, they need to budget Samantha’s $2,600 monthly take-home pay. Bera suggests $800 for the fixed costs of rent and phones, and $1,500 to be divided between discretionary spending and monthly essentials such as groceries.

Attack the debt: The $300 left over in Bera’s proposed budget should go toward paying down interest on Travis’s debt, even though he can defer repayment until after his residency; his current loans are accruing interest amounting to about $7,000 annually. Their payments will likely qualify the couple for an annual $2,500 student loan interest tax deduction over the next few years. Once Travis finishes his residency, Bera says, he should be able to pay off his loans in 10 years at the rate of $2,300 a month, while maxing out his 401(k) contributions ($17,500 is the current annual limit).

Though the Liebhards needn’t have roommates for­ever, says Bera, they should hold off on buying a home. “If you have student loans the size of a mortgage, you should avoid taking out a mortgage,” she says. Samantha is not so sure. “We can wait a few years after Travis graduates,” she says, “but once we have a child who’s able to walk, we’d like to have a place bigger than an apartment.”

More Retirement Money Makeovers:
4 Kids, 2 Jobs, No Time to Plan
30 Years Old and Already Falling Behind

MONEY Investing

The Easy Fix for an Incredibly Common and Costly Retirement Mistake

New proof that just showing up is half the investing game.

Writing about retirement inevitably turns you into the bearer of bad news. But last week brought a positive development: The downward trend in the percentage of workers participating in an employment-based retirement plan reversed course in 2013. The number of workers participating is now at the highest level since 2007, according to the Employee Benefit Research Institute (ERBI).

Which means, unfortunately, that from a wealth-building perspective, the timing of the nation’s workforce is actually pretty terrible.

The ERBI has only been tracking participation rates since 1987, a relatively short window, but still a bad pattern has clearly emerged: Workers are less likely to participate after the stock market drops, so they lose out when the market recovers.

The participation of wage and salary workers peaked in 2000 at 51.6%, right before a 3-year bear market that saw the compound annual growth rate (the CAGR, which includes dividends) of the S & P 500 declining 9.11% in 2000, 11.98% in 2001, and 22.27% in 2002. In 2003 however, the S & P rebounded up 28.72%, but retirement plan participation rates continued to decline, hitting a low of 45.5% in 2006 before finally beginning to rise.

Then the same thing happened again after the financial crisis. Participation rates had peaked at 47.7% in 2007, before declining in 2008 when the S & P 500 dropped a whopping 37.22%. Even though the market began to bounce back immediately in 2009, participation rates continued to decline down to 44.2% until that trend finally reversed in 2013 according to the EBRI data released last week. With each stock market shock, the participation rate fell but never fully reached its previous high, so that the 2013 rate of 45.8% is still lower than the 46.1% participation rate seen in 1987.

This bears repeating: The participation rate in an employment-based retirement plan in 2013 was lower than it was in 1987. I don’t think I need to tell you what has happened to the S&P 500 from 1987 to 2013.

Now of course one could argue that it’s harder to save for retirement if your salary has been frozen, or your bonus was cut, or especially if you were forced to take a lower-paying job, as many who were able to stay employed throughout the recession experienced. Employers have also been scaling back or eliminating entirely company matches, which further disincentives workers from participating. But waiting until you start making more money to save for retirement is a losing game, especially if you subscribe to the new theory put forth by Thomas Piketty in his much-discussed but I suspect less-widely read book Capital in the Twenty-First Century.

Piketty’s thesis is that the return on capital in the twenty-first century will be significantly higher than the growth rate of the economy and more specifically the growth of wages (4% to 5% for return, barely 1.5% for wage growth.) Furthermore, the return on capital has always been greater than economic (and wage) growth, except for an anomalous period during the second half of the twentieth century when there was an exceptionally high rate of growth worldwide. It is the inequality of capital ownership that drives wealth inequality, a phenomenon that cannot be reversed as long as the rate of return continues to exceed the rate of growth, or as Piketty helpfully provides, R>G. (Full disclosure: I only read the introduction and then used the index to find sections that most interested me.)

If you apply R>G to retirement planning, it follows that it’s more important to be in the market than to wait for a raise or to reach the next step on the career ladder to start participating in a plan. The usual caveats apply: First you must get rid of any high-interest debt and create a three-month cushion for emergencies. But once you’re in a plan, if the economy—and your income along with it—hits some major bumps, it’s even more important to continue to contribute lest you miss out on the upside. Just remember: R>G.

Konigsberg is the author of The Truth About Grief, a contributor to the anthology Money Changes Everything, and a director at Arden Asset Management. The views expressed are solely her own.

More on retirement investing:

Should I invest in bonds or bond mutual funds?

What is the right mix of stocks and bonds for me?

How often should I check my retirement investments?

Read next: Why Americans Can’t Answer the Most Basic Retirement Question

MONEY IRAs

Closing the Loophole Behind $10 Million Tax-Free Retirement Accounts

Fewer than 1,100 of 43 million IRA owners have what may be called outsized balances, and the IRS wants to rein them in.

The former presidential hopeful Mitt Romney lit a fuse three years ago when he disclosed his IRA was valued at as much as $102 million. Now the federal government wants to keep the issue from exploding, and is weighing actions that would prevent rich people from accumulating so much in a tax-advantaged account.

Last week, the General Accounting Office recommended that the IRS either restrict the types of investments held in IRAs or set a ceiling for IRA account balances. The idea is to give all taxpayers equal ability to save while making certain the amounts put away tax-advantaged do not go beyond what is generally regarded as sufficient savings to secure a comfortable retirement.

Romney’s campaign disclosure caught almost everyone by surprise. How could one person build such a large IRA balance when yearly allowable contributions — up to $5,500 a year in 2014 and $6,500 if you’re age 50 or older — have always been comparatively low? The answer lies in the types of investments he and privileged others were able to put in their IRA: extremely low-priced and often non-public securities that later soared in value.

One such security might be the shares of a privately owned business. These can reasonably be expected to take flight if the business does well and later goes public. That produces a wealth of tax-advantaged savings to company founders, investment bankers and venture capitalists. But these gains are not generally available to any other investor. Once an asset is inside an IRA there is no limit to how valuable it may become and still remain in the tax-advantaged account.

Restricting eligible IRA holdings to publicly available securities is one way to level the field and rein in the accumulation of tax-advantaged wealth. Another way is to cap IRA balances at, say, $5 million and require IRA holders to take an immediate taxable distribution anytime their combined IRA holdings exceed that threshold.

The GAO found that the federal government stands to forego $17 billion of 2014 tax revenue through the IRA contributions of individuals. That’s not a high price to pay for added retirement security for the masses. The problem is that under current rules only a select few will ever be able to put together multi-million-dollar IRAs. There are 43 million IRA owners in the U.S. with total assets of $5.2 trillion. Fewer than 10,000 have more than $5 million, and the GAO seems to have little quarrel with even this group. They tend to be above-average earners past age 65 who had been contributing to their IRA for many years—pretty much exactly as designed.

But just over 1,100 have account values greater than $10 million and only 300 have account values greater than $25 million, the GAO found. “The accumulation of these large IRA balances by a small number of investors stands in contrast to Congress’s aim to prevent the tax-favored accumulation of balances exceeding what is needed for retirement,” the report states.

Officials are now gathering data on the types of assets held in IRAs, including the so-called “carried interest” stake that private equity managers have in the investment funds they run. These stakes, which give them a percentage of a fund’s gain, are another way that a select few manage to sock away multiple millions of dollars in IRAs. No one doubts the data will illustrate that only a privileged few have access to outsized IRA savings. The Romney campaign showed us that three years ago.

Read next: 3 Ways to Have a Happier, Healthier Retirement

MONEY retirement planning

Money Makeover: 30 Years Old, and Already Falling Behind

When she turned 30, Chianti Lomax had an epiphany: Her salary and savings weren't enough to buy a home or start a family. MONEY paired her with a financial expert for help with a plan.

Chianti Lomax grew up poor in Greenville, S.C., raised by a single mother who supported her four children by holding several jobs at once. Inspired by her mom, Lomax worked her way through high school and college; today, the Alexandria, Va., resident makes $83,000 plus bonuses as a management consultant.

But turning 30 last December, Lomax had an epi­phany: Her career and her 401(k)—now worth $35,000 —weren’t enough to achieve her long-term goals: raising a family and buying a house in the rural South.

Her biggest problem, she realized, was her spending. So she downsized from the $1,200-a-month one-bedroom apartment she rented to a $950 studio, canceled her cable, got a free gym membership by teaching a Zumba class, and gave up the 2010 Honda she leased in favor of a 2004 Acura she paid for in cash. With those savings, she doubled her 401(k) contribution to 6% to get her full employer match.

And yet, nearly a year later, Lomax has only $400 in the bank, along with $12,000 in student loans. Having gone as far as she can by herself, Lomax wants advice. As she puts it, “How can I find more ways to save and make my money grow?”

Marcio Silveira of Pavlov Financial Planning in Arlington, Va., says Lomax is doing many things right, including avoiding credit card debt. Spending, however, remains her weakness. Lomax estimates that she spends $500 a month on extras like weekend meals with friends and $5 nonfat caramel macchiatos, but Silveira, studying her cash flow, says it’s probably more like $700. “That money could be put to far better use,” he says.

The Advice

Track the cash: Silveira says Lomax should log her spending with a free online service like Mint (also available as a smartphone app). That will make her more careful about flashing her debit card, he says, and give her the hard data she needs to create a budget. Lomax should cut her discretionary spending, he thinks, by $500 a month. Can a young, single person really socialize on $50 a week? Silveira says yes, given that Lomax cooks for herself most evenings and is busy with volunteer work. Lomax thinks $75 is more doable. “But I’d like to shoot for $50,” she says. “I like challenging myself.”

Setting More Aside infographic
MONEY

Automate savings: Saving money is easier when it’s not in front of you, says Silveira. He advises Lomax to open a Roth IRA and set up an automatic transfer of $200 a month from her checking account, adding in any year-end bonus to reach the current annual Roth contribution limit of $5,500, and putting all the cash into a low-risk short-term Treasury bond fund.

Initially, says Silveira, the Roth will be an emergency fund. Lomax can withdraw contributions tax-free, but will be less tempted to pull money out for everyday expenses than if the money were in a bank account. Once Lomax has $12,000 in the Roth, she should continue saving in a bank account and gradually reallocate the Roth to a stock- heavy retirement mix. Starting the emergency fund in a Roth, says Silveira, has the bonus of getting Lomax in the habit of saving for retirement outside of her 401(k).

Ramp it up: Lomax should increase her 401(k) contribution to 8% immediately and then again to 10% in January—a $140-a-month increase each time. Doing this in two steps, says Silveira, will make the transition easier. Under Silveira’s plan, Lomax will be setting aside 23% of her salary. She won’t be able to save that much upon starting a family or buying a house, he says, but setting aside so much right now will give her retirement savings many years to compound.

Read next:
12 Ways to Stop Wasting Money and Take Control of Your Stuff
Retirement Makeover: 4 Kids, 2 Jobs, No Time to Plan

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